The jobs of 200 public servants have been slashed in a dramatic effort to cut costs at the Victorian government's troubled IT agency CenITex.

Chief executive officer Michael Vanderheide made the shock announcement to staff this afternoon in a memo — headed "Labour Rationalisation Program" — that was leaked to The Age.

The job cuts, which will affect mostly CenITex's team of highly-paid IT contractors, are part of a bigger restructure that will see a whole division, Efficient Technology Services, wound down by mid-year.

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A total of 280 positions, one-third of CenITex's workforce, will be removed;

About 80 vacant positions will not be filled;

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About 100 contractor positions and 50 fixed-term contractors will go; and

Another 50 permanent public servants will lose their jobs, although the government will attempt to redeploy them.

The Age understands the cuts are not directly related to Premier Ted Baillieu's broader cuts to the public service.

In the recent state budget, the government announced it would shed a further 600 state public servants, bringing total public sector job losses announced since December to 4200.

It is understood the cuts are being made because government departments are not able to pay for their IT services and the flawed financial model on which CenITex was established in 2008.

CenITex services the computing needs of 36,800 public servants and has been the subject of three inquiries this year, including an Ombudsman's investigation and a police probe by the fraud and extortion squad.

The agency has been in limbo since the Baillieu government halted the rollout of shared IT services across government departments and asked the State Services Authority to review its operations.

The authority's report and its recommendations have been suppressed by the government.

Last month, The Age reported that the Baillieu government, acting on the findings of the State Services Authority review, had overhauled the body's organisational structure, a move likely to result in a new board. Board chair Warren Hodgson resigned following the announcement.

In the leaked memo, Mr Vanderheide told staff that some of the internal efficiencies budgeted from the Efficient Technology Services program "had not yet materialised" and revenues from customers (other government departments) was decreasing.

"The coming year for CenITex will be one of consolidation... I have made several difficult decisions," he said in the memo.

"Where possible, we propose to remove unfilled positions, manage reductions through natural attrition, and look to reduce our contract and fixed term workforce. I also expect some redundancies will be necessary. In all I expect that approximately 200 people across CenITex will be affected."

A staff member told The Age: "It came as a bit a bit of a shock to say the least. It's interesting that they are reducing a large number of staff but there are no reduction in the management staff we're reporting to."

Community and Public Sector Union assistant secretary Jim Walton said CenITex management had told the union some people may be redeployed to other parts of the public service. "But there's a freeze on jobs across the public service, you can't fill any jobs," he said.

An investigation by The Age earlier this year revealed that 46 per cent of the $377 million worth of contracts CenITex signed since 2008 had gone to highly paid contractors - many on $1000 a day - while the bureaucracy noticed little improvement in its outdated IT.

Assistant Treasurer Gordon Rich-Phillips said the government was committed to delivering a more efficient and effective IT service than the one it inherited from Labor.

"Most of the redundancies announced by CenITex involve contractors. We believe the changes we are making to the organisation will improve its accountability and oversight," Mr Rich-Phillips said.